Allowances for Children

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Allowances for children can be a hot topic for children and money.  As always doing is the best way to learning and giving an allowance is a great way for children to learn about money and start practicing sound financial principles.  The best time to begin allowances for children is probably after they start school, can count, and see what money can buy.  Then children will learn different financial principles at different ages.

A commonly suggested amount of allowances for children is around half their age.  As they save money, some should go into a savings account.  As teens, new financial skills may include allowances that buy gas or clothes, part-time jobs, or pre-paid debit cards.  The goal is when they leave home, they have the foundation for managing their own money wisely.  An allowance is one of the earliest and most important ways for children to learn and practice real money management skills.  So an allowance is both a practical method for children to buy their own stuff and a learning tool.  Getting a part-time job is even better for learning hands-on money management skills before going off on their own.

Here is my experience with allowances for children.  We started allowances when the kids were in early elementary school and old enough to know what money was for and how to count it.  They also had chores to do over and above cleaning up their own messes and putting their own clean clothes away, but I tried to emphasize that their allowance was not “pay” for doing chores.  Everyone does certain family chores because there are chores to do and they are part of the family.  Their allowance is unrelated to chores, but is given so that they have their own money to buy their own stuff that they want that we aren’t going to buy for them.  This was a hard concept to grasp, perhaps partly because now and then they could get an increase by taking on extra responsibilities like mowing the grass or being bribed to practice the trumpet.  Other parents link allowances explicitly as pay for chores, but they still need to make clear that some responsibilities are due because they are a member of the family or because they need to accept personal responsibility.  As our children got older, their allowance increased, but so did the types of things they now had to buy for themselves.

We also used an allowance to teach certain concepts.  We explicitly divided up their weekly allowance into three parts:  one dollar was put into their “savings envelope”, one dollar was for their choice of charities (usually church), and the rest for their other uses.  On the one hand this was enforced saving, but hopefully on the other they learned that before you get your spending money, you first set aside your savings and other priorities.

While still in elementary school, we took them to the local bank and opened savings accounts for them to periodically transfer their savings from their savings envelopes to their savings account.  They could and did add other funds they saved or received as gifts.  For a while, I gleefully showed them their quarterly savings account statements showing how their money was increasing with compound interest.  But then interest rates plunged to negligible amounts, their account statements started reporting their whopping 3 cents of compounded interest, and I quietly started throwing their statements away before they could see how little they were earning for all their savings.  Nonetheless, they do enjoy knowing that they have reserve funds in a bank for safe-keeping.

As teenagers, we increased their allowance substantially with the provision that they were now responsible for paying for more things like their own entertainment, outings with friends, family gifts, and clothes.  I think the main result is that they suddenly really liked getting clothes for birthdays and Christmas and thus didn’t need to spend their own money on such things!

About John Kimball

Over the past few decades, I have experienced most of these financial issues with both mistakes and successes. I sure wish someone had told me these things when I was first starting out. So many times I have cried out, "I want a do over!" when I learned a new financial lesson or tip. I aim to pass along to you the financial insights I have gained from experience, reading, analysis, and living the financial aspects of managing, saving, investing, and spending your money. I am an analyst with a large organization and happily married with two children on their way to an expensive college, no doubt. I read numerous financial blogs, websites, newsletters, magazines, newspapers, and books to bring you the latest news, insights, tips, and lessons combined with decades of experience.

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